Citigroup and Merrill: perform or die?
Posted
Nov 05 2007, 01:33 PM
by
Matt Koppenheffer
There's a sidebar on the Wall Street Journal website right now with the title "perform or die" and pictures of Chuck Prince and Stan O'Neal -- now, respectively, the former CEOs of
Citigroup and
Merrill Lynch. By "die," of course, the WSJ means to be fired, as both have very recently found themselves jobless, but still very much alive. While the headline is certainly an eye catcher, is it true?
One might argue that no matter where you're the head honcho, if you don't perform you may quickly find yourself back on HotJobs. The case is a bit different for Prince and O'Neal though. The banks of both CEOs racked up massive losses and write-downs from the mortgage and credit markets under their watch.
In the case of O'Neal, it was $8.4 billion in
write-downs in the third quarter capped off by furtive talks with Wachovia about a merger that cost him his job.
More recently for Prince, it was Citigroup's underperformance versus its competitors over the preceding years, combined $6.5 billion of write-downs in the third quarter and an expected $8 billion to $11 billion of further write-downs in the fourth quarter that spelled the end.
Now if you were to ask me, that's not lack of performance, that's failure on a grand scale.
Following the weekend's news about Prince's departure, I shot over to
The Motley Fool's CAPS service to see the reaction of CAPS players. One of CAPS' top players,
AndyShea, gave Citi the thumbs up today, saying that:
I think we're close to a bottom at $36 per share, and believe rumors of a dividend cut or dividend suspension are overdone. Current dividend is attractive at 6% per share. This is an attractive pick for LONG TERM investors with an investment window of 3-5 years.
This sentiment is countered by another top CAPS player, jester112358, who noted that "much larger write-offs due to subprime problems are expected and will be factored into the future value of this stock. Expect more bad news to surface over the next few months."
Overall, the stock carries only a two-star rating but does have the support of over 2,000 CAPS players. I tend to agree with jester that it'll still be uphill for Citi (and Merrill for that matter) in the near term, but for investors with a sufficiently long term perspective, this might be a good time to start looking at Citi shares.
(Full disclosure: I do not have a financial position in any of the companies mentioned.)
